The China over-invoicing export distortion is back (sort of)
May 15, 2014 Leave a comment
The China over-invoicing export distortion is back (sort of)
Izabella Kaminska | May 08 07:04 | 2 comments | Share
Let’s face it. Chinese national statistics are to some degree always treated with a pinch of salt by analysts and economists alike.
That said, there’a s big difference between massaging subjective inputs in statistical methodologies and failing to adjust for misleading economic activity driven by actual economic behaviour.
Case in point, Chinese export figures, which according to Capital Economics are now suffering the consequences of a bad comparative due to last year’s carry-trade inspired over-invoicing fad (since cracked down on by the state).
As Julian Evans-Pritchard noted about China’s latest export figure data on Thursday, exports simply are not what they seem (our emphasis):
China’s trade data show signs of recovery but continue to understate the true health of the export sector. Export growth recovered from -6.6% y/y in March to +0.9% last month. Although this was stronger than most had expected (the Bloomberg median was -3.0%; our forecast was -2.0%), the weak growth is still likely be read by some as a sign of strain in China’s export sector. However, April’s low export growth was, as in previous months, largely caused by rampant over-invoicing of trade to avoid capital flows last year, which has created an artificially strong base for comparison. These distortions appear to have resulted in exports to Hong Kong and Taiwan, via which most of the over-invoicing took place, contracting by 30% in y/y terms last month.
In contrast, exports to the rest of the world grew 10.2% y/y, which suggests that external demand remains healthy, a view supported by strong export growth in Korea and Taiwan last month. Import growth also recovered, from -11.3% y/y in March to +0.8% in April, but remains weak. (Bloomberg -2.1%; CE -2.0%). Import growth appears to have suffered from similar distortions with much of the weakness concentrated in imports from Hong Kong and Taiwan, which contracted 12.4% last month.
That said, imports to the rest of the world grew by just 2.3%, which hints at a legitimate slowdown in imports. Finally, the trade surplus rebounded further from $7.7bn in March to $18.5bn last month. Looking ahead, healthy demand in external markets should continue to support exports.Moreover, because Chinese officials appear to have cracked down on over-invoicing around this time last year, the distortions that have pulled down headline export growth look set to fade. In contrast, we expect import growth to remain relatively weak as slowing property activity weighs on commodity imports. As a result, China is likely to continue to post large trade surpluses this year.
In short, things may be much better than they seem.
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